Pam Katz is the showroom manager at Artistic Tile at the San Francisco Design Center. Many of the tenants there may be forced to leave as the landlord uses a landmark law to clear the building for Pinterest.

Pam Katz is the showroom manager at Artistic Tile at the San Francisco Design Center. Many of the tenants there may be forced to leave as the landlord uses a landmark law to clear the building for Pinterest.

Cafe Pazzo, as seen on Thursday June 19, 2014, is one of the tenants at the San Francisco Design Center, in San Francisco, Calif. Many of the tenants at the Design Center may be forced to leave as the landlord attempts to clear the building making it available for high tech business. less

Cafe Pazzo, as seen on Thursday June 19, 2014, is one of the tenants at the San Francisco Design Center, in San Francisco, Calif. Many of the tenants at the Design Center may be forced to leave as the ... more

(06-20) 10:18 PDT SAN FRANCISCO -- Pinterest, the San Francisco darling of crafters and do-it-yourself enthusiasts, has signed a deal to take over a four-story brick warehouse in the heart of San Francisco's Showplace Square Design District.

There's only one problem: The building is already full.

Just as showroom businesses are bouncing back from the recession, dozens of tenants in the San Francisco Design Center building at 2 Henry Adams St. face likely eviction if the landlord is successful in obtaining the approvals needed to convert the 311,000-square-foot building into Pinterest's headquarters.

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The design center's current zoning does not allow for technology companies like Pinterest. It is zoned PDR - production, distribution and repair - which is meant to preserve blue-collar jobs in a part of town that is a hotbed of housing and office development. But buried in the language of the zoning is a loophole: Buildings designated as historic landmarks can legally convert from PDR to traditional office uses.

Landmark designation

In spring 2013, Bay West Development, the property management firm hired by building owner RREEF in Chicago, filed an application with the city Planning Department to obtain landmark designation for the building. The San Francisco Historic Preservation Commission unanimously approved the designation, and it was cruising toward final approval at the Board of Supervisors when Supervisor Malia Cohen learned of the Pinterest deal.

At a time when warehouses across her district are being knocked down to make way for $1 million condominiums, Cohen said the potential ousting of small businesses at 2 Henry Adams St. is worrisome. Cohen had the city's planning staff put together a list of other potentially historic PDR buildings that could be converted - 14 structures totaling 1 million square feet.

"The market is changing and the landlords are seeing dollar signs," Cohen said. "They want to push everyone out. That kind of displacement sickens me, and it's the kind of displacement that has San Francisco in a crisis."

The San Francisco Design Center is made up of two brick buildings across the street from each other in Showplace Square, which straddles Potrero Hill and SoMa. The other is the 300,000-square-foot Galleria building at 101 Henry Adams St. Both buildings are well-leased: The would-be Pinterest Building is 90 percent leased and 101 Henry Adams St. is 80 percent leased.

The Design District emerged in the early 1970s as showroom tenants were being priced out of Jackson Square on the north waterfront. Pinterest would initially take 100,000 square feet on the third and fourth floors and grow to 245,000 square feet. About 68,000 square feet would remain PDR, according to Bay West Development partner Sean Murphy.

Pay for relocation

Murphy said businesses in both buildings are shrinking and that many of the 2 Henry Adams St. tenants will be able to find homes across the street in the Galleria building.

"With the age of the Internet and immediacy of goods, the industry has ventured away from the showroom industry," he said.

Murphy said he would work to ensure that businesses that aren't able to relocate across the street find new homes in a three-block radius. He said the ownership would pay for relocation and tenant improvements for firms that are moved.

Tenant sentiment in the design center is mixed; some say they would welcome Pinterest into the complex, while others argue it would be the death of the district.

Many tenants say the management company has refused to agree to long-term leases over the past 18 months, insisting on month-to-month deals.

Jeane Reynolds, general manager of American County Floors, had hired an architect late last year to redesign its space, but building management told them not to move forward. Meanwhile, she said, the property management has been traipsing through the space with entourages of prospective tech tenants, commercial brokers and architects.

"It's not a good sign when some guys show up to measure your back door," she said. Management "won't talk to us about it."

Jim Gallagher, general manager of Garden Court Antiques, said the short-term leases are making tenants afraid to speak out. "At any moment they could say they are not renewing your lease, and after 30 years you have 30 days to get out of the space," he said.

While the showrooms may not have the on-site blue-collar jobs commonly associated with PDR, the buildings are the underpinning of an ecosystem of skilled trades for people who are able to earn a living wage without a college education, Gallagher said.

"There are upholsterers, refinishers, manufacturers, fabrication workrooms and movers,all of which are good-paying PDR jobs throughout the city," Gallagher said. "We are at the heart of that network. If you shrink us down, you shrink those jobs. Not just in this building, but all across the city."

Pinterest moved to San Francisco from Silicon Valley with great fanfare in 2012, taking 60,000 square feet at 808 Brannan St.

Yet these days, fast-growing firms like Pinterest have few real estate options. While San Francisco is undergoing its biggest building boom in 30 years, most of the space under construction has already been pre-leased by companies like Trulia, Salesforce, LinkedIn and Dropbox. An additional 15 prospective tenants are each looking for 100,000 square feet or more, while there are just six spaces that big available in the city.

"That is the hot topic right now: There are so few large blocks available that people really have to get creative," said Julia Georgules, director of research at JLL.

Good fit for designers

Several design center tenants echoed Murphy's contention that Pinterest - which designers use to showcase their goods - is a nice fit at 2 Henry Adams St. Joe Gaul, a partner with custom furniture maker GaulSearson, said the footprint of his business has declined from 25,000 square feet in the early 1970s to 9,000 square feet today.

"I want to keep up with the times because if we don't we are going to wither and die," he said. "I love the idea of getting the endorsement of a tech company like Pinterest. We need that kind of credibility to go forward."

For its part, Pinterest would like to stay close to its current spot on Brannan Street, "but drawn to the building by the prospect of ... having our company embedded with the very design community that is at the heart of our service," said company spokesman Barry Schnitt. Nothing is final yet, he added.

Both sides say the building, built in 1915 for mining equipment supplier Dunham, Carrigan and Hayden, deserves to be designated a local landmark. Cohen is looking into legislation that would allow landmarked buildings to have some office space, but not as much as the current law allows. She said the landmarking of 2 Henry Adams St. won't go forward until she introduces the legislation.

"I am looking for a broad policy to set the zoning; I don't want to do spot zoning," Cohen said. "I believe I can strike a balance between PDR and allowing higher revenues to support the maintenance of these buildings, which are old and beautiful and expensive to maintain. But I'm not doing anything until these tenants have all their questions answered."